Income and Corporation Taxes Act 1988

[F1 289 Eligibility for relief. U.K.

(1) For the purposes of this Chapter, an individual is eligible for relief, subject to the following provisions of this Chapter, if—

(a) eligible shares in a qualifying company for which he has subscribed [F2 wholly in cash] are issued to him and, under section 291, he qualifies for relief in respect of those shares,

[F3 (aa) at the time when they are issued the shares are fully paid up (disregarding for this purpose any undertaking to pay cash to the company at a future date),]

(b) the shares [F4 and all other shares comprised in the same issue] are issued in order to raise money for the purpose of a qualifying business activity,

[F5 (ba) the requirements of subsection (1A) below are satisfied in relation to the company,] and

(c) the money raised by the issue is employed not later than the time mentioned in subsection (3) below wholly for the purpose of [F6 the activity mentioned in paragraph (b) above].

[F7 (1A) The requirements of this subsection are satisfied in relation to a qualifying company if throughout the relevant period the active company—

[F8 (a) is a company which—

(i) is such a company as is mentioned in section 293(2)(a), and

(ii) if it is a subsidiary of the qualifying company, is a 90 per cent subsidiary of that company, or]

(b) would be [F9 a company falling within paragraph (a) above] if its purposes were disregarded to the extent that they consist in the carrying on of activities such as are mentioned in section 293(3D)(a) and (b) and (3E)(a), or

(c) is a [F10 90 per cent. subsidiary] of the qualifying company and falls within subsection (1B) below.

(1B) A subsidiary of the qualifying company falls within this subsection if—

(a) apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, it exists wholly for the purpose of carrying on activities such as are mentioned in section 293(3D)(b); or

(b) it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments.

(1C) In subsection (1A) above “the active company” means the qualifying company or, where the qualifying business activity mentioned in subsection (1) above consists in a subsidiary of that company carrying on or preparing to carry on a qualifying trade, research and development or oil exploration, that subsidiary.

(1D) Subsection (6) of section 293 shall apply in relation to the requirements of subsection (1A) above as it applies in relation to subsection (2) of that section.]

(2) In this Chapter “qualifying business activity”, in relation to a company, means—

(a) the company or any subsidiary—

(i) carrying on a qualifying trade which, on the date the shares are issued, it is carrying on, or

(ii) preparing to carry on a qualifying trade which, on that date, it intends to carry on wholly or mainly in the United Kingdom and which it begins to carry on within two years after that date,

but only if, at any time in the relevant period when the qualifying trade is carried on, it is carried on wholly or mainly in the United Kingdom,

(b) the company or any subsidiary carrying on research and development—

(i) which, on the date the shares are issued, it is carrying on or which it begins to carry on immediately afterwards, and

(ii) from which it is intended that a qualifying trade which the company or any subsidiary will carry on wholly or mainly in the United Kingdom will be derived,

but only if, at any time in the relevant period when the research and development or the qualifying trade derived from it is carried on, it is carried on wholly or mainly in the United Kingdom, or

(c) the company or any subsidiary carrying on oil exploration—

(i) which, on the date the shares are issued, it is carrying on or begins to carry on immediately afterwards, and

(ii) from which it is intended that a qualifying trade which the company or any subsidiary will carry on wholly or mainly in the United Kingdom will be derived,

but only if, at any time in the relevant period when the oil exploration or the qualifying trade derived from it is carried on, it is carried on wholly or mainly in the United Kingdom.

(3) The time referred to in subsection (1)(c) above is—

(a) the end of the period of twelve months beginning with the issue of the eligible shares, or

(b) in the case of money raised only for the purpose referred to in subsection (2)(a) above, the end of that period or, if later, the end of the period of twelve months beginning when the company or subsidiary concerned begins to carry on the qualifying trade,

and for the purposes of this Chapter, the condition in subsection (1)(c) above does not fail to be satisfied by reason only of the fact that an amount of money which is not significant is employed for another purpose.

(4) Subsection (2)(c) above shall not apply unless—

(a) throughout the period of three years beginning with the date on which the shares were issued, the company or any subsidiary holds an exploration licence which was granted to it, or to another subsidiary,

(b) the exploration is carried out solely within the area to which the licence applies, and

(c) on the date on which the shares were issued, neither the company nor any subsidiary held an appraisal licence or a development licence relating to that area or any part of that area.

(5) Where, at any time after the issue of the shares but before the end of the period mentioned in subsection (4)(a) above, the company or any subsidiary comes to hold an appraisal licence or development licence which relates to the area, or any part of the area, to which the exploration licence relates, the exploration licence and that other licence shall be treated for the purposes of subsection (4)(a) above as a single exploration licence.

(6) An individual is not eligible for relief in respect of any shares unless the shares are subscribed [F11 for], and issued, for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(7) In this Chapter “eligible shares” means new ordinary shares which, throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future F12 . . . right to be redeemed.

(8) Section 312(1A)(b) applies to determine the relevant period for the purposes of this section.

[F13 (9) In this section “90 per cent. subsidiary”, in relation to the qualifying company, means a subsidiary of a kind which the company might hold by virtue of section 308 if—

(a) the references in subsection (2) of that section to 75 per cent. were references to 90 per cent.; and

(b) subsection (4) of that section were omitted.]]

Textual Amendments

F1 Ss. 289-289B substituted for s. 289 (with effect in accordance with s. 137(2) of the amending Act) by Finance Act 1994 (c. 9), s. 137(1), Sch. 15 para. 2

F2 Words in s. 289(1)(a) inserted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(1)(a)

F3 S. 289(1)(aa) inserted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(1)(b)

F4 Words in s. 289(1)(b) inserted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(1)(c)

F5 S. 289(1)(ba) inserted (with effect in accordance with Sch. 8 para. 1 of the amending Act) by Finance Act 1997 (c. 16), Sch. 8 para. 2(1)

F6 Words in s. 289(1)(c) substituted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(1)(d)

F7 S. 289(1A)-(1D) inserted (with effect in accordance with Sch. 8 para. 1 of the amending Act) by Finance Act 1997 (c. 16), Sch. 8 para. 2(2)

F8 S. 289(1A)(a) substituted (with effect in accordance with s. 71(2) of the amending Act) by Finance Act 1999 (c. 16), s. 71(1)(a)

F9 Words in s. 289(1A)(b) substituted (with effect in accordance with s. 71(2) of the amending Act) by Finance Act 1999 (c. 16), s. 71(1)(b)

F10 Words in s. 289(1A)(c) substituted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(2)

F11 Word in s. 289(6) inserted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(3)

F12 Word in s. 289(7) repealed (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(4), Sch. 27 Pt. 3(14), Note 4

F13 S. 289(9) inserted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 1(5)

Modifications etc. (not altering text)

C1 S. 289 amended (as it has effect in relation to shares issued before 1st January 1994) by Finance Act 1995 (c. 4), s. 68(1)(2)